Question

In: Accounting

INTERMEDIATE ACCOUNTING 2 -- CHAPTER 11 3. Mueller Company purchased equipment 8 years ago for $1,000,000....

INTERMEDIATE ACCOUNTING 2 -- CHAPTER 11

3. Mueller Company purchased equipment 8 years ago for $1,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and a $100,000 residual value. Mueller’s operations have experienced significant losses for the past two years and as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Mueller Company estimates that the equipment has a remaining useful life of 7 years. Net cash inflows from the equipment are estimated to be $80,000 per year. The fair value of the equipment is $240,000.

Required (show all work for credit):

(a) Determine if an impairment loss should be recognized.

(b) If an impairment loss has occurred, prepare the journal entry to record the loss.

(c) How would your answers change if the net cash inflows from the equipment were estimated to be $100,000 per year for the remaining seven years?

(d) Going back to the original information, how would your answers to parts (a) and (b) change if the fair value of the equipment was $500,000?

Solutions

Expert Solution

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Chapter 11 Depreciation, Impairements and Depletion Mueller Company purchased equipment 8 years ago for $1,000,000. The...
Chapter 11 Depreciation, Impairements and Depletion Mueller Company purchased equipment 8 years ago for $1,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and a $100,000 residual value. Mueller’s operations have experienced significant losses for the past two years and as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Mueller Company estimates that the equipment has a remaining useful life of 7 years. Net...
Office equipment was purchased 6 1/2 years ago for $250,000, with an estimated life of 8...
Office equipment was purchased 6 1/2 years ago for $250,000, with an estimated life of 8 years and a residual value of $10,000, is now sold for $45,000 cash. (Appropriate entries for depreciation had been made for the first six years of use.) Journalize the following entries: (10 points) (a) Record the depreciation for the one-half year prior to the sale, using the straight-line method. (b) Record the sale of the equipment.
Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers...
Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers could be sold today for $300,000. If these computers are sold in five years, they will be worth $50,000. The CCA rate for these computers is 30%.          The company is now considering whether it should replace these computers with newer and more powerful ones. The estimated total purchase cost of the new computers is $1.5 million. These computers can be sold for $300,000...
6.      Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000....
6.      Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers could be sold today for $300,000. If these computers are sold in five years, they will be worth $50,000. The CCA rate for these computers is 30%.          The company is now considering whether it should replace these computers with newer and more powerful ones. The estimated total purchase cost of the new computers is $1.5 million. These computers can be sold...
6.       Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000....
6.       Holmes Inc. purchased computer equipment two years ago at a total cost of $1,000,000. These computers could be sold today for $300,000. If these computers are sold in five years, they will be worth $50,000. The CCA rate for these computers is 30%.          The company is now considering whether it should replace these computers with newer and more powerful ones. The estimated total purchase cost of the new computers is $1.5 million. These computers can be sold...
Your company is undertaking a new project. A building was purchased 5 years ago for $1,000,000...
Your company is undertaking a new project. A building was purchased 5 years ago for $1,000,000 depreciated straight line to $100,000 (the land value) over 30 years. It is now worth $600,000 (including $100,000 land). The project requires improvements to the building of $200,000. The improvements are depreciated straight line to zero over the life of the project. The project will generate revenues of $325,000, $350,000, $375,000 and $400,000 for years 1-4, respectively. Annual cash operating expenses are $180,000, $200,000,...
Problem 6 : Mueller Company purchased equipment on January 1, 2015 for $2,000,000. Because of the...
Problem 6 : Mueller Company purchased equipment on January 1, 2015 for $2,000,000. Because of the unique kind of equipment and the possibility of radioactivity from its components, the equipment will require very special disposal at the end of its useful life of 15 years. Mueller estimates the cost of disposal at $250,000 (ARO). The equipment is depreciated using the straight line method. Mueller's operations have experienced significant losses for the past 2 years and, as a result, the company...
Mueller Company purchased equipment on January 1, 2015 for $2,000,000. Because of the unique kind of...
Mueller Company purchased equipment on January 1, 2015 for $2,000,000. Because of the unique kind of equipment and the possibility of radioactivity from its components, the equipment will require very special disposal at the end of its useful life of 15 years. Mueller estimates the cost of disposal at $250,000 (ARO). The equipment is depreciated using the straight line method. Mueller's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that...
The Darlington Equipment Company purchased a machine 5 years ago at a cost of $90,000. The...
The Darlington Equipment Company purchased a machine 5 years ago at a cost of $90,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $9,000 per year. If the machine is not replaced, it can be sold for $10,000 at the end of its useful life. A new machine can be purchased for $150,000, including installation costs. During its 5-year life, it will reduce cash...
The Darlington Equipment Company purchased a machine 5 years ago at a cost of $100,000. The...
The Darlington Equipment Company purchased a machine 5 years ago at a cost of $100,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $10,000 per year. If the machine is not replaced, it can be sold for $10,000 at the end of its useful life. A new machine can be purchased for $160,000, including installation costs. During its 5-year life, it will reduce cash...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT